UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
DATE OF REPORT (Date of earliest event reported): March 16, 2015
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ITT EDUCATIONAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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1-13144
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36-2061311
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(State or other
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(Commission
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(IRS Employer
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jurisdiction of
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File Number)
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Identification No.)
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incorporation)
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13000 North Meridian Street
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Carmel, Indiana 46032-1404
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (317) 706-9200
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01
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Entry into a Material Definitive Agreement.
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Financing Agreement Amendment
On March 17, 2015, ITT Educational Services, Inc. (the “Company”) entered into Amendment No. 2 to Financing Agreement (the “Financing Agreement Amendment”) with Cerberus Business Finance, LLC (“Cerberus”), as collateral agent and administrative agent, and the lenders party thereto. The Financing Agreement Amendment provides for certain amendments to the Financing Agreement (the “Financing Agreement”), dated as of December 4, 2014, by and among the Company, the subsidiary guarantors party thereto, Cerberus and the lenders party thereto.
The Financing Agreement Amendment provides:
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for an amendment to the limitation on the aggregate amount of payments that the Company can make related to the PEAKS Private Student Loan Program and the 2009 Loan Program (as defined below) in any fiscal year after 2014, modifying it from $20.0 million per program in each year to: (i) $45.0 million under both programs in 2015; and (ii) $35.0 million under both programs in any year after 2015 that the Financing Agreement is still in effect;
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that Cerberus and the lenders consent to an extension to May 31, 2015 of the deadline by which the Company is required to deliver to them the financial statements, projections, compliance certificate, report, opinion and statement required under Sections 7.01(a)(ii), 7.01(a)(iii) and 7.02(a)(iv) of the Financing Agreement for the fiscal year ended December 31, 2014 and the fiscal quarter ended March 31, 2015; and
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for an amendment to the definition of “Fixed Charge Coverage Ratio” to provide that, for purposes of calculating the Fixed Charge Coverage Ratio for any period that includes the fiscal quarter ended December 31, 2014, the amount of payments made during that fiscal quarter in respect of the PEAKS Private Student Loan Program will be deemed to have been $5,000,000.
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The above summary of the Financing Agreement Amendment is qualified in its entirety by the full text of the Financing Agreement Amendment, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.
Although the Company has obtained the above amendments to avoid violations of various covenants under the Financing Agreement, the Company cannot provide any assurance that future violations will not occur, and cannot provide any assurance that it will be able to deliver its 2014 and first quarter 2015 financial statements and related information by the extended deadline. The Company may not be able to obtain additional amendments to, or waivers of, those covenants.
On December 23, 2014, the Company entered into Amendment No. 1 to Financing Agreement, which made immaterial modifications to the Financing Agreement to extend the time by which the Company was required to establish certain cash management accounts. A copy of Amendment No. 1 to Financing Agreement is attached hereto as Exhibit 10.2 and incorporated herein by reference.
2009 RSA Amendment
On March 17, 2015, the Company and the Student CU Connect CUSO, LLC (the “2009 Entity”) entered into the Fifth Amendment (the “Fifth Amendment”) to the Risk Sharing Agreement, dated as of February 20, 2009 between the Company and the 2009 Entity (as amended, the “2009 RSA”). The Fifth Amendment provides that:
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the period of time during which the Company is not required to comply with the debt service ratio covenant under the 2009 RSA is extended through March 31, 2015;
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the period of time during which the Company is not required to comply with the current ratio covenant under the 2009 RSA is extended through December 31, 2015;
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for any fiscal quarter end in which the 2009 Entity or any asset owned or managed by the 2009 Entity is consolidated in the Company’s financial statements, the financial covenant and persistence percentage provisions of Sections 7.2(b)(1) and 7.2(b)(2), and the corresponding compliance certificate requirement of Section 7.2(b)(3) of the 2009 RSA will be based on the relevant quarterly and annual reports of the Company filed with the Securities and Exchange Commission, but excluding the effects of any such consolidation; and
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any financial statements of the Company for periods ending prior to March 17, 2015 that are required to be delivered to the 2009 Entity, but have not been delivered as of that date, must be delivered to the 2009 Entity on or before May 31, 2015, and the deadline for delivery to the Company of any financial statements of the 2009 Entity that are required to be delivered to the Company on or before May 31, 2015 shall be extended to the 15th day following delivery to the 2009 Entity of the outstanding Company financial statements.
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The Fifth Amendment also provides that in lieu of an increase in the required collateral under the 2009 RSA that otherwise would have resulted from the failure to comply with the specified financial ratio covenants during the applicable periods, the Company will make a payment of approximately $2.7 million to the 2009 Entity, which payment will be considered a Discharge Payment (as defined below) under the 2009 RSA.
The above summary of the Fifth Amendment is qualified in its entirety by the full text of the Fifth Amendment, a copy of which is attached hereto as Exhibit 10.3 and incorporated herein by reference.
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Item 2.01
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Completion of Acquisition or Disposition of Assets.
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See the information disclosed under Item 2.04, below, which is incorporated into this Item 2.01 by reference.
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Item 2.03
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
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See the information disclosed under Item 2.04, below, which is incorporated into this Item 2.03 by reference.
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Item 2.04
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Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
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On February 20, 2009, the Company entered into agreements with the 2009 Entity to create a program that made private education loans available to the Company’s students to help pay the students’ cost of education that financial aid from federal, state and other sources did not cover (the “2009 Loan Program”). Under the 2009 Loan Program, an unrelated lender originated private education loans to the Company’s eligible students and, subsequently, sold those loans to the 2009 Entity. The 2009 Entity purchased the private education loans from the lender utilizing funds received from its owners in exchange for participation interests in the private education loans acquired by the 2009 Entity. The total initial principal amount of private education loans that the 2009 Entity purchased under the 2009 Loan Program was approximately $141.0 million. The lender disbursed the proceeds of the private education loans to the Company for application to the students’ account balances with the Company that represented their unpaid education costs. No new private education loans were or will be originated under the 2009 Loan Program after December 31, 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through June 2012.
In connection with the 2009 Loan Program, the Company entered into the 2009 RSA. Under the 2009 RSA, the Company guarantees the repayment of any private education loans that are charged off above a certain percentage of the private education loans made under the 2009 Loan Program, based on the annual dollar volume. The Company also made advances to the 2009 Entity under a revolving note (the “Revolving Note”) in years prior to 2012. Under the 2009 RSA, the Company has an obligation to make the monthly payments due and unpaid on those private education loans that have been charged off above a certain percentage (“Regular Payments”). Instead of making Regular Payments, however, the Company may elect to discharge its obligations to make Regular Payments on specified charged-off private education loans by:
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paying the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has been paid; or
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paying the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has not been paid, plus any interest that would otherwise have been payable until ten monthly payments had been made, discounted at the rate of 10% per annum,
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(collectively, “Discharge Payments”).
The 2009 Entity is a variable interest entity (“VIE”) as defined by Financial Accounting Standards Board Accounting Standards Codification™ 810, “Consolidation.” The Company holds variable interests in the 2009 Entity as a result of the 2009 RSA and the Revolving Note. In accordance with the accounting literature, an entity that holds a variable interest in a VIE and is determined to be the primary beneficiary of the VIE, is required to consolidate the VIE in its consolidated financial statements.
The Company evaluated whether it met the requirements to be considered the primary beneficiary of the 2009 Entity. Based on its analysis, the Company concluded that it became the primary beneficiary of the 2009 Entity as of September 30, 2014. This was the first date that the Company determined that it had the power to direct the activities of the 2009 Entity that most significantly impact the economic performance of the 2009 Entity, because the entity that performs the servicing activities on behalf of the 2009 Entity (the “2009 Loan Program Servicer”) failed to meet certain performance criteria specified in the servicing agreement that governs the servicing activities of the loans made under the 2009 Loan Program (the “2009 Entity Servicing Agreement”) on that date. The 2009 Entity Servicing Agreement provides that in the event that the 2009 Loan Program Servicer fails to meet certain performance criteria specified in the 2009 Entity Servicing Agreement, and the 2009 Loan Program Servicer does not effect a cure of that failure during a specified cure period, the Company would have the right to terminate the 2009 Entity Servicing Agreement. The Company determined that it was not reasonably possible that the 2009 Loan Program Servicer would be able to effect a cure during the specified cure period and, therefore, because the cure period was not substantive, the Company was deemed, for accounting purposes, to have had the right to terminate the 2009 Entity Servicing Agreement as of the date that the 2009 Loan Program Servicer failed to meet the performance criteria. The Company believes that the 2009 Loan Program Servicer failed to meet the performance criteria as of September 30, 2014.
After significant analyses and review associated with the accounting related to this matter, the Company has determined that it became the primary beneficiary of the 2009 Entity as of the date the 2009 Loan Program Servicer failed to meet the performance criteria and, therefore, the Company is required to consolidate the 2009 Entity into its consolidated financial statements effective as of September 30, 2014 (the “2009 Entity Consolidation”). In periods prior to September 30, 2014, the Company concluded that it was not the primary beneficiary of the 2009 Entity, and therefore the Company was not required to consolidate the 2009 Entity in its consolidated financial statements in those periods.
The 2009 Entity Consolidation will result in a different presentation in the Company’s consolidated financial statements of the Company’s transactions with the 2009 Entity. All transactions between the Company and the 2009 Entity will be eliminated from the Company’s consolidated financial statements beginning as of September 30, 2014. As a result of the difference between the methodology used by the Company to value the assets and liabilities related to the 2009 Entity prior to the 2009 Entity Consolidation and after the 2009 Entity Consolidation, the Company will no longer record a contingent liability related to the 2009 RSA on its consolidated balance sheet beginning September 30, 2014. Based on current information available to the Company, it believes that, if it had not been required to consolidate the 2009 Entity as of September 30, 2014, the amount of the contingent liability that it would have recorded related to the 2009 RSA as of September 30, 2014 would have been $114.6 million. Although the Company will no longer record a contingent liability related to the 2009 RSA beginning September 30, 2014, the Company’s obligations under the 2009 RSA will remain in effect, until all loans made under the 2009 Loan Program are paid in full. See below for the Company’s current estimates of future payments it may have to make under the 2009 RSA.
Further, the 2009 RSA will no longer be considered an off-balance sheet obligation of the Company after September 30, 2014, and the assets and liabilities of the 2009 Entity will be included on the Company’s consolidated balance sheets. Although the assets and liabilities of the 2009 RSA will be presented on the Company’s consolidated balance sheets following the 2009 Entity Consolidation, the assets of the 2009 RSA can only be used to satisfy the obligations of the 2009 RSA.
As a result of the 2009 Entity Consolidation, for accounting purposes, the assets and liabilities of the 2009 Entity will be treated as having been acquired by the Company at their fair values as of September 30, 2014. Based on a preliminary, unaudited assessment of the fair values of the 2009 Entity’s assets and liabilities as of September 30, 2014 and the elimination of intercompany transactions, the Company believes that it will not recognize a loss on the 2009 Entity Consolidation. The Company is still evaluating and analyzing the impact of the 2009 Entity Consolidation on its consolidated financial statements, but based on that same preliminary, unaudited assessment, the Company believes that it may recognize a pre-tax gain related to the 2009 Entity Consolidation that could be material to its consolidated financial statements for the year ended December 31, 2014. This estimate of a potential pre-tax gain is preliminary and is the result of the difference between the estimated fair values of the assets and liabilities of the 2009 Entity as of September 30, 2014, which are subject to change. The Company will report its final determination of the estimated fair values of the assets and liabilities of the 2009 Entity as of September 30, 2014 in the its notes to consolidated financial statements included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and its Annual Report on Form 10-K for the year ended December 31, 2014.
The assets of the 2009 Entity consist primarily of the private education loans owned by the 2009 Entity (the “2009 Loan Program Loans”), which the Company will report initially at fair value on its balance sheet as result of the 2009 Entity Consolidation. The Company believes that a significant number of the 2009 Loan Program Loans will be determined to be credit impaired upon the 2009 Entity Consolidation. The liabilities of the 2009 Entity consist primarily of its obligations to the credit unions (“Participating Credit Unions”) that purchased participating interests in the 2009 Loan Program Loans, and the Revolving Note. The 2009 Entity’s obligations to the Participating Credit Unions are to distribute to the Participating Credit Unions substantially all payments that the 2009 Entity receives in respect of the 2009 Loan Program Loans, whether from the borrower of the loan or the Company pursuant to its guarantee obligations under the 2009 RSA.
The Company does not believe that the 2009 Entity Consolidation will have a material negative impact on its ability to comply with:
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its covenants under the Financing Agreement;
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the U.S. Department of Education’s financial responsibility measurements, primarily the Company’s institutions’ composite score;
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the financial requirements of the state education and professional licensing authorities to which the Company is subject; or
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the financial metrics to which the Company is subject under the 2009 RSA and the PEAKS Private Student Loan Program.
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However, the Company is still evaluating the full impact of the 2009 Entity Consolidation on these matters, and therefore cannot provide any assurance that the 2009 Entity Consolidation will not have a material negative impact on these matters, which could result in a material adverse effect on the Company’s results of operations, financial condition and/or cash flows. Further, the Company did anticipate that it may be in noncompliance with certain covenants under the Financing Agreement and certain metrics under the 2009 RSA as a result of other factors, and therefore it entered into amendments to those agreements as discussed in Item 1.01 above.
As noted above, although the Company will no longer record a contingent liability related to the 2009 RSA on its consolidated balance sheet beginning September 30, 2014, the Company’s obligations under the 2009 RSA will remain in effect. The Company is entitled to all amounts that the 2009 Entity recovers from loans in a particular loan pool made under the 2009 Loan Program that have been charged off, until all payments that the Company made under the 2009 RSA with respect to that loan pool have been repaid to the Company by the 2009 Entity. Pursuant to the 2009 RSA, the Company has the right to offset amounts that it owes under the 2009 RSA by the amount of recoveries from charged-off loans made under the 2009 Loan Program that are owed, but have not been paid, to the Company. In the year ended December 31, 2014, the Company made payments under the 2009 RSA of approximately $9.1 million. Reflected in this amount were:
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Regular Payments of $7.0 million;
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a Discharge Payment of $2.6 million that the Company made pursuant to a Fourth Amendment to 2009 RSA; and
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$0.5 million in recoveries from charged-off loans that were owed to the Company from the 2009 Entity and that we applied to reduce the amount payable by the Company to the 2009 Entity pursuant to the Company’s offset right.
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Based on the Company’s current estimates, which are based on numerous assumptions and are subject to change, the following table sets forth, in the periods indicated, the Company’s projections of the estimated amounts of Regular Payments and Discharge Payments that the Company expects to pay (or that the Company expects will be owed by it, which amounts could be reduced prior to payment thereof by the amount of recoveries from charged-off loans owed to the Company as described in the immediately preceding sentence) and the estimated amounts of recoveries from charged-off loans that the Company expects to be paid to it by the 2009 Entity (or that it may utilize to offset a portion of the amounts of Regular Payments or Discharge Payments owed by the Company) (in millions):
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Estimated
Regular
Payments
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Estimated
Discharge
Payments
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Estimated
Total
Payments
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Estimated
Recoveries
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2015
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$13.9
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$0
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$13.9
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$(1.2)
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2016
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16.4
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0
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16.4
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(1.2)
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2017
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17.1
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0
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17.1
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(1.3)
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2018 and later
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0
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74.2
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74.2
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(0.4)
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Total
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$47.4
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$74.2
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$121.6
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$(4.1)
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The Company previously reported in its Form 10-Q for the fiscal quarter ended June 30, 2014 that estimated total payments under the 2009 RSA for 2015 and beyond would be approximately $120.6 million. As noted in the table above, the estimated payments under the 2009 RSA for 2015 and beyond are now projected to approximate $121.6 million. The Company believes that the vast majority of the $74.2 million of estimated payments projected to be paid after 2017 will be made by the Company in 2018. The estimated future payment amounts and timing related to the 2009 RSA assume, among other factors, that the Company does not make any Discharge Payments in 2015, 2016 or 2017 and does make Discharge Payments to the fullest extent possible in 2018 and later years. If the Company does not make the Discharge Payments as assumed in 2018 and later years, the Company estimates that it would make approximately $102.2 million of Regular Payments in 2018 through 2027. Of this amount, approximately $16.5 million to $17.4 million would be paid annually in each of 2018 through 2022, and approximately $16.3 million, in the aggregate, would be paid in 2023 through 2027.
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Item 3.01
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Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
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On March 16, 2015, the Company received a notice from NYSE Regulation, Inc. that, as a result of the Company’s failure to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “2014 Form 10-K”), the Company is subject to the procedures set forth in the New York Stock Exchange’s (“NYSE”) Listed Company Manual, Section 802.01E, “SEC Annual and Quarterly Report Timely Filing Criteria.” The Company was required to file its 2014 Form 10-K on or before March 16, 2015 (“Filing Due Date”), and the Company does not believe that it will be able to file the 2014 Form 10-K by the extension period provided by Rule 12b-25 of the Securities Exchange Act of 1934, as amended.
As previously reported in Form 8-K filings, the Company engaged a new independent registered public accounting firm during the fourth quarter of 2014. Also as previously reported and as discussed above in Item 2.04, the Company will be required to consolidate the 2009 Entity into its consolidated financial statements beginning September 30, 2014. Although management of the Company has been working diligently to complete the Company’s consolidated financial statements as of and for the three and nine months ended September 30, 2014 and as of and for the year ended December 31, 2014, the extensive analyses and reviews related to the 2009 Entity Consolidation have caused the delays associated with completing the Company’s financial statements and related disclosures for those periods.
The Company is working diligently to be able to file the 2014 Form 10-K, as well as its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the “Third Quarter 2014 Form 10-Q”), as soon as practicable. Based on the Company’s current estimates, it believes that it may file the 2014 Form 10-K and the Third Quarter 2014 Form 10-Q on or before May 31, 2015. Due to the uncertainty around the timing of completion of the necessary reviews and analyses, however, the Company cannot and does not provide any assurances that the filings will be completed in the estimated timeframe. The Company is providing this information solely to convey its current beliefs regarding the potential filing timing and not to provide the exact timing of the dates of these filings, which could change from its current estimates.
In accordance with the NYSE’s procedures, the Company is required to contact the NYSE to discuss the status of the 2014 Form 10-K and to issue a press release pertaining to the late filing by the fifth business day following the receipt of the NYSE’s notification. The Company has contacted the NYSE to discuss the filing status and has issued the press release within the five-day period. The Company has six months from the Filing Due Date to cure the deficiency. Subject to the NYSE’s ongoing oversight and review, including that it could commence delisting proceedings with respect to the Company at any time if circumstances warrant, the Company can regain compliance during that six-month cure period once it files its 2014 Form 10-K with the SEC, but only if it has also filed all other periodic reports with subsequent due dates. In the event the Company fails to file its 2014 Form 10-K by the expiration of the six-month cure period, or if the Company is delinquent in the filing of any of its subsequent periodic reports at the expiration of the six-month cure period, the NYSE may commence proceedings to delist the Company’s common stock, unless the NYSE grants, in its sole discretion, a further extension of up to six months. There can be no assurance that the NYSE would not commence delisting proceedings with respect to the Company or that it would grant a further extension to the Company.
The Company’s common stock remains listed on the NYSE under the symbol “ESI,” but has been assigned an “LF” indicator by the NYSE to signify the Company’s late filing status, due to the delayed filing of the Third Quarter 2014 Form 10-Q.
The Company is working diligently to complete the 2014 Form 10-K and the Third Quarter 2014 Form 10-Q, and to file them as soon as practicable. As noted above, based on the Company’s current estimates, it believes that it may file the 2014 Form 10-K and the Third Quarter 2014 Form 10-Q on or before May 31, 2015. Due to the uncertainty with respect to the timing of the completion of the necessary reviews and analyses, however, there can be no assurance that the Company will be able to file the 2014 Form 10-K, the Third Quarter 2014 Form 10-Q or its Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, within the NYSE’s six-month cure period.
On March 18, 2015, the Company issued a press release relating to certain of the matters discussed above. A copy of that press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
The following exhibits are being filed herewith:
Exhibit No. Description
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10.1
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Amendment No. 2 to Financing Agreement, dated as of March 17, 2015, by and among ITT Educational Services, Inc., the subsidiary guarantors party thereto, Cerberus Business Finance, LLC, as administrative agent and collateral agent, and the lenders party thereto
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10.2
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Amendment No. 1 to Financing Agreement, dated as of December 23, 2014, by and among ITT Educational Services, Inc., the subsidiary guarantors party thereto, Cerberus Business Finance, LLC, as administrative agent and collateral agent, and the lenders party thereto
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10.3
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Fifth Amendment to Risk Sharing Agreement, dated as of March 17, 2015, by and between ITT Educational Services, Inc. and Student CU Connect CUSO, LLC
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99.1
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Press Release issued by the Company dated March 18, 2015.
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Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based on the current expectations and beliefs of the company's management concerning future developments and their potential effect on the company. The company cannot assure you that future developments affecting the company will be those anticipated by its management. These forward-looking statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: the impact of the Company’s late filings with the U.S. Securities and Exchange Commission, including the 2014 Form 10-K; the impact of the adverse actions by the U.S. Department of Education (the “ED”) related to the company’s failure to submit its 2013 audited financial statements and 2013 compliance audits with the ED by the due date; the impact of the consolidation of variable interest entities on the company and the regulations, requirements and obligations that it is subject to; the inability to obtain any required amendments or waivers of noncompliance with covenants under the company’s financing agreement; actions by the New York Stock Exchange to delist the company’s common stock; the company’s inability to remediate material weaknesses, or the discovery of additional material weaknesses, in the company’s internal control over financial reporting; issues related to the restatement of the company’s financial statements for the first three quarters of 2013; the company’s exposure under its guarantees related to private student loan programs; the outcome of litigation, investigations and claims against the company; the effects of the cross-default provisions in the company’s financing agreement; changes in federal and state governmental laws and regulations with respect to education and accreditation standards, or the interpretation or enforcement of those laws and regulations, including, but not limited to, the level of government funding for, and the company's eligibility to participate in, student financial aid programs utilized by the company's students; business conditions in the postsecondary education industry and in the general economy; the company's failure to comply with the extensive education laws and regulations and accreditation standards that it is subject to; effects of any change in ownership of the company resulting in a change in control of the company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of its campuses; the company's ability to implement its growth strategies; the company’s ability to retain or attract qualified employees to execute its business and growth strategies; the company's failure to maintain or renew required federal or state authorizations or accreditations of its campuses or programs of study; receptivity of students and employers to the company's existing program offerings and new curricula; the company’s ability to repay moneys it has borrowed; the company's ability to collect internally funded financing from its students; and other risks and uncertainties detailed from time to time in the company's filings with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 18, 2015
ITT Educational Services, Inc.
By: /s/ Daniel M. Fitzpatrick
Name: Daniel M. Fitzpatrick
Title: Executive Vice President, Chief
Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
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10.1
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Amendment No. 2 to Financing Agreement, dated as of March 17, 2015, by and among ITT Educational Services, Inc., the subsidiary guarantors party thereto, Cerberus Business Finance, LLC, as administrative agent and collateral agent, and the lenders party thereto
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10.2
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Amendment No. 1 to Financing Agreement, dated as of December 23, 2014, by and among ITT Educational Services, Inc., the subsidiary guarantors party thereto, Cerberus Business Finance, LLC, as administrative agent and collateral agent, and the lenders party thereto
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10.3
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Fifth Amendment to Risk Sharing Agreement, dated as of March 17, 2015, by and between ITT Educational Services, Inc. and Student CU Connect CUSO, LLC
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99.1
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Press Release issued by ITT Educational Services, Inc. dated March 18, 2015
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EXHIBIT 10.1
EXECUTION VERSION
AMENDMENT NO. 2
TO FINANCING AGREEMENT
AMENDMENT NO. 2 TO FINANCING AGREEMENT, dated as of March 17, 2015 (this "Amendment"), to the Financing Agreement, dated as of December 4, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the "Financing Agreement"), by and among ITT Educational Services, Inc. (the "Parent" or the "Borrower"), each subsidiary of the Parent listed as a "Guarantor" on the signature pages thereto (together with each other Person that executes a joinder agreement and becomes a "Guarantor" thereunder or otherwise guaranties all or any part of the Obligations (as defined therein), each a "Guarantor" and collectively, the "Guarantors"), the lenders from time to time party thereto (each a "Lender" and collectively, the "Lenders"), Cerberus Business Finance, LLC ("Cerberus"), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the "Collateral Agent"), and Cerberus, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent" and together with the Collateral Agent, each an "Agent" and collectively, the "Agents").
WHEREAS, the Loan Parties have requested that the Agents and the Lenders amend certain terms and conditions of the Financing Agreement; and
WHEREAS, the Agents and the Lenders are willing to amend such terms and conditions of the Financing Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All terms used herein that are defined in the Financing Agreement and not otherwise defined herein shall have the meanings assigned to them in the Financing Agreement.
2. Amendments.
(a) Existing Definitions. Clause (b)(i) of the definition of "Fixed Charge Coverage Ratio" in Section 1.01 of the Financing Agreement is hereby amended and restated in its entirety to read as follows:
"(b) the sum of (i) all principal of Indebtedness of such Person and its Subsidiaries scheduled to be paid or prepaid during such period to the extent there is an equivalent permanent reduction in the commitments thereunder (provided, that, for the purpose of calculating the amount of payments in connection with the PEAKS Guarantees in accordance with this clause (b) for any period that includes the fiscal quarter of the Parent and its Subsidiaries ending December 31, 2014, the aggregate amount of such payments for such fiscal quarter shall equal $5,000,000),"
(b) New Definitions. Section 1.01 of the Financing Agreement is hereby amended by adding the following definitions, in appropriate alphabetical order:
"'Amendment No. 2' means Amendment No. 2 to Financing Agreement, dated as of March 17, 2015, by and among the Loan Parties, the Agents and the Lenders."
"'Amendment No. 2 Effective Date' means the "Amendment Effective Date" as set forth in Amendment No. 2."
(c) 2009 RSA Guaranty Payments and PEAKS Guaranty Payments. Sections 7.03(h) and 7.03(i) are hereby amended in their entirety to read as follows:
"(h) 2009 RSA Guaranty Payments and PEAKS Guaranty Payments. Permit the aggregate amount of payments made by the Loan Parties (i) under the 2009 RSA Guarantees or the 2009 RSA Guaranty Documents to exceed $12,000,000 in Fiscal Year 2014; (ii) under the PEAKS Guarantees or the PEAKS Guaranty Documents to exceed $170,000,000 in Fiscal Year 2014; or (iii) under the PEAKS Guarantees, the PEAKS Guaranty Documents, the 2009 RSA Guarantees and the 2009 RSA Guaranty Documents to exceed (x) $45,000,000 in the Fiscal Year ending December 31, 2015, and (y) $35,000,000 in any Fiscal Year thereafter.
(i) [Intentionally Omitted]."
3. Limited Consent.
(a) Subject to the satisfaction of the conditions to effectiveness set forth in Section 4 herein, as of the Amendment Effective Date, the Agent and the Lenders hereby consent to the extension to May 31, 2015, of (i) the deadline by which the Loan Parties are required to deliver to the Agents and the Lenders the financial statements, the Projections, Compliance Certificate, report, opinion and statement required under Section 7.01(a)(iii) and Section 7.01(a)(iv) of the Financing Agreement for the Fiscal Year ending December 31, 2014, and (ii) the deadline by which the Loan Parties are required to deliver to the Agents and the Lenders the financial statements, the Projections and Compliance Certificate required under Section 7.01(a)(ii) and Section 7.01(a)(iv) of the Financing Agreement for the fiscal quarter ending March 31, 2015. Each Loan Party hereby acknowledges and agrees that it shall be an immediate Event of Default under the Financing Agreement if such documents are not delivered to the Agent on or prior to May 31, 2015.
(b) The consent in this Section 3 shall be effective only in this specific instance and for the specific purpose set forth herein and do not allow for any other or further departure from the terms and conditions of the Financing Agreement or any other Loan Document, which terms and conditions shall continue in full force and effect.
4. Conditions to Effectiveness. This Amendment shall become effective only upon satisfaction in full, in a manner satisfactory to the Agents, of the following conditions precedent (the first date upon which all such conditions shall have been satisfied being hereinafter referred to as the "Amendment Effective Date"):
(a) Representations and Warranties. The representations and warranties contained Article VI of the Financing Agreement and in each other Loan Document shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the Amendment Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date).
(b) No Default; Event of Default. After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing on the Amendment Effective Date or result from this Amendment becoming effective in accordance with its terms.
(c) Delivery of Documents. The Collateral Agent shall have received on or before the Amendment Effective Date this Amendment, duly executed by the Loan Parties, each Agent and each Lender.
5. Continued Effectiveness of the Financing Agreement and Other Loan Documents. Each Loan Party hereby (a) acknowledges and consents to this Amendment, (b) confirms and agrees that the Financing Agreement and each other Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Amendment Effective Date, all references in any such Loan Document to "the Financing Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Amendment, and (c) confirms and agrees that, to the extent that any such Loan Document purports to assign or pledge to the Collateral Agent, for the benefit of the Agents and the Lenders, or to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a security interest in or Lien on any Collateral as security for the Obligations of the Loan Parties from time to time existing in respect of the Financing Agreement (as amended hereby) and the other Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. This Amendment does not and shall not affect any of the obligations of the Loan Parties, other than as expressly provided herein, including, without limitation, the Loan Parties' obligations to repay the Loans in accordance with the terms of Financing Agreement or the obligations of the Loan Parties under any Loan Document to which they are a party, all of which obligations shall remain in full force and effect. Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Agent or any Lender under the Financing Agreement or any other Loan Document nor constitute a waiver of any provision of the Financing Agreement or any other Loan Document.
6. No Novation. Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Financing Agreement or instruments securing the same, which shall remain in full force and effect, except as modified hereby.
7. No Representations by Agents or Lenders. Each Loan Party hereby acknowledges that it has not relied on any representation, written or oral, express or implied, by any Agent or any Lender, other than those expressly contained herein, in entering into this Amendment.
8. Release. Each Loan Party hereby acknowledges and agrees that: (a) neither it nor any of its Subsidiaries has any claim or cause of action against any Agent or any Lender (or any of the directors, officers, employees, agents, attorneys or consultants of any of the foregoing) and (b) the Agents and the Lenders have heretofore properly performed and satisfied in a timely manner all of their obligations to the Loan Parties, and all of their Subsidiaries and Affiliates. Notwithstanding the foregoing, the Agents and the Lenders wish (and the Loan Parties agree) to eliminate any possibility that any past conditions, acts, omissions, events or circumstances would impair or otherwise adversely affect any of their rights, interests, security and/or remedies. Accordingly, for and in consideration of the agreements contained in this Amendment and other good and valuable consideration, each Loan Party (for itself and its Subsidiaries and Affiliates and the successors, assigns, heirs and representatives of each of the foregoing) (collectively, the "Releasors") does hereby fully, finally, unconditionally and irrevocably release, waive and forever discharge the Agents and the Lenders, together with their respective Affiliates and Related Funds, and each of the directors, officers, employees, agents, attorneys and consultants of each of the foregoing (collectively, the "Released Parties"), from any and all debts, claims, allegations, obligations, damages, costs, attorneys' fees, suits, demands, liabilities, actions, proceedings and causes of action, in each case, whether known or unknown, contingent or fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity, under contract, tort, statute or otherwise, which any Releasor has heretofore had or now or hereafter can, shall or may have against any Released Party by reason of any act, omission or thing whatsoever done or omitted to be done, in each case, on or prior to the Amendment Effective Date directly arising out of, connected with or related to this Amendment, the Financing Agreement or any other Loan Document, or any act, event or transaction related or attendant thereto, or the agreements of any Agent or any Lender contained therein, or the possession, use, operation or control of any of the assets of any Loan Party, or the making of any Loans or other advances, or the management of such Loans or other advances or the Collateral. Each Loan Party represents and warrants that it has no knowledge of any claim by any Releasor against any Released Party or of any facts or acts or omissions of any Released Party which on the date hereof would be the basis of a claim by any Releasor against any Released Party which would not be released hereby.
9. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment by facsimile or electronic mail shall be equally effective as delivery of an original executed counterpart of this Amendment.
(b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
(c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.
(d) Each Loan Party hereby acknowledges and agrees that this Amendment constitutes a "Loan Document" under the Financing Agreement.
(e) Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date set forth on the first page hereof.
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BORROWER:
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ITT EDUCATIONAL SERVICES, INC.
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By:
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/s/ Daniel M. Fitzpatrick
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Name: Dan Fitzpatrick
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Title: EVP CFO
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GUARANTORS:
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ESI SERVICE CORP.
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By:
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/s/ Daniel M. Fitzpatrick
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Name: Dan Fitzpatrick
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Title: VP Treasurer
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DANIEL WEBSTER COLLEGE, INC.
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By:
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Name: Angela K Knowlton
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Title: VP & Treasurer
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COLLATERAL AGENT:
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CERBERUS BUSINESS FINANCE, LLC
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By:
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Name: Kevin P. Genda
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Title: Vice Chairman
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ADMINISTRATIVE AGENT:
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CERBERUS BUSINESS FINANCE, LLC
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By:
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Name: Kevin P. Genda
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Title: Vice Chairman
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LENDERS:
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CERBERUS KRS LEVERED LLC
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By: /s/ Kevin P. Genda
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Name: Kevin P. Genda
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Title: Vice President
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CERBERUS ICQ LEVERED LLC
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By: /s/ Kevin P. Genda
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Name: Kevin P. Genda
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Title: Vice President
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CERBERUS ASRS FUNDING LLC
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By:
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Name: Kevin P. Genda
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Title: Vice President
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CERBERUS ICQ LEVERED LOAN OPPORTUNITIES FUND, L.P.
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By: Cerberus ICQ Levered Opportunities GP, LLC
Its: General Partner
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Name: Kevin P. Genda
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Title: Senior Managing Director
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LENDERS:
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CERBERUS KRS LEVERED LOAN
OPPORTUNITIES FUND, L.P.
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By: Cerberus KRS Levered Opportunities GP, LLC
Its: General Partner
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Name: Kevin P. Genda
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Title: Senior Managing Director
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CERBERUS N-1 FUNDING LLC
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By: |
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Name: Kevin P. Genda
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Title: Vice President
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CERBERUS ONSHORE LEVERED II LLC
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By: |
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Name: Kevin P. Genda
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Title: Vice President
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EXHIBIT 10.2
EXECUTION VERSION
AMENDMENT NO. 1
TO FINANCING AGREEMENT
AMENDMENT NO. 1 TO FINANCING AGREEMENT, dated as of December 23, 2014 (this "Amendment"), to the Financing Agreement, dated as of December 4, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the "Financing Agreement"), by and among ITT Educational Services, Inc. (the "Parent" or the "Borrower"), each subsidiary of the Parent listed as a "Guarantor" on the signature pages thereto (together with each other Person that executes a joinder agreement and becomes a "Guarantor" thereunder or otherwise guaranties all or any part of the Obligations (as defined therein), each a "Guarantor" and collectively, the "Guarantors"), the lenders from time to time party thereto (each a "Lender" and collectively, the "Lenders"), Cerberus Business Finance, LLC ("Cerberus"), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the "Collateral Agent"), and Cerberus, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent" and together with the Collateral Agent, each an "Agent" and collectively, the "Agents").
WHEREAS, the Loan Parties have requested that the Agents and the Lenders amend certain terms and conditions of the Financing Agreement; and
WHEREAS, the Agents and the Lenders are willing to amend such terms and conditions of the Financing Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All terms used herein that are defined in the Financing Agreement and not otherwise defined herein shall have the meanings assigned to them in the Financing Agreement.
2. Amendments.
(a) New Definitions. Section 1.01 of the Financing Agreement is hereby amended by adding the following definitions, in appropriate alphabetical order:
(i) "'Amendment No. 1' means Amendment No. 1 to Financing Agreement, dated as of December 23, 2014, by and among the Loan Parties, the Agents and the Lenders."
(ii) "'Amendment No. 1 Effective Date' means the "Amendment Effective Date" as set forth in Amendment No. 1."
(b) Cash Management Arrangements and Other Collateral Matters. Sections 8.01(b)(ii) and 8.01 (b)(iii) of the Financing Agreement are hereby amended in their entirety to read as follows:
"(ii) (A) in the case of any Cash Management Account maintained at Heartland Bank or First American Bank, during the period from and after the Effective Date until the Final Maturity Date, and (B) in the case of any Cash Management Account maintained at Wheatland Bank, during the period after December 23, 2014 until the Final Maturity Date, the Loan Parties shall cause all amounts on deposit in such Cash Management Accounts (less charges for returned items and the applicable Cash Management Bank's fees and expenses incurred in connection with such account in the ordinary course of business) to be transferred into a Concentration Account maintained at JPMorgan Chase Bank, N.A. that is subject to a Control Agreement on not less than a weekly basis when the amount on deposit in any such Cash Management Account exceeds $25,000."
"(iii) On or prior to December 23, 2014 (or such later date as the Collateral Agent may agree), the Loan Parties shall (A) establish a Concentration Account at Bank of America, N.A. and a Concentration Account at Wells Fargo Bank, National Association, (B) deliver to the Collateral Agent a Control Agreement with respect to each such Concentration Account, and (C) with respect to each Cash Management Account (other than any Excluded Account, any Concentration Account maintained at JPMorgan Chase Bank, N.A. that is subject to a Control Agreement, any Cash Management Account maintained at Heartland Bank, First American Bank or Wheatland Bank, or any disbursement account), deliver to the Collateral Agent evidence that all amounts on deposit in each such Cash Management Account (less charges for returned items and the applicable Cash Management Bank's fees and expenses incurred in connection with such account in the ordinary course of business) (1) will be automatically swept into a Concentration Account maintained at JPMorgan Chase Bank, N.A. that is subject to a Control Agreement, (2) in the case of any such Cash Management Account maintained at Bank of America, N.A., other than the Concentration Account described in clause (A) above, will be automatically swept into such Concentration Account, or (3) in the case of any such Cash Management Account maintained at Wells Fargo Bank, National Association, other than the Concentration Account described in clause (A) above, will be automatically swept into such Concentration Account, in each case, when the amount on deposit in any such Cash Management Account exceeds $5,000."
3. Conditions to Effectiveness. This Amendment shall become effective only upon satisfaction in full, in a manner satisfactory to the Agents, of the following conditions precedent (the first date upon which all such conditions shall have been satisfied being hereinafter referred to as the "Amendment Effective Date"):
(a) Representations and Warranties. The representations and warranties contained Article VI of the Financing Agreement and in each other Loan Document shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the Amendment Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date).
(b) No Default; Event of Default. No Default or Event of Default shall have occurred and be continuing on the Amendment Effective Date or result from this Amendment becoming effective in accordance with its terms.
(c) Delivery of Documents. The Collateral Agent shall have received on or before the Amendment Effective Date this Amendment, duly executed by the Loan Parties, each Agent and each Lender.
4. Continued Effectiveness of the Financing Agreement and Other Loan Documents. Each Loan Party hereby (a) acknowledges and consents to this Amendment, (b) confirms and agrees that the Financing Agreement and each other Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Amendment Effective Date, all references in any such Loan Document to "the Financing Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Amendment, and (c) confirms and agrees that, to the extent that any such Loan Document purports to assign or pledge to the Collateral Agent, for the benefit of the Agents and the Lenders, or to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a security interest in or Lien on any Collateral as security for the Obligations of the Loan Parties from time to time existing in respect of the Financing Agreement (as amended hereby) and the other Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. This Amendment does not and shall not affect any of the obligations of the Loan Parties, other than as expressly provided herein, including, without limitation, the Loan Parties' obligations to repay the Loans in accordance with the terms of Financing Agreement or the obligations of the Loan Parties under any Loan Document to which they are a party, all of which obligations shall remain in full force and effect. Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Agent or any Lender under the Financing Agreement or any other Loan Document nor constitute a waiver of any provision of the Financing Agreement or any other Loan Document.
5. No Novation. Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Financing Agreement or instruments securing the same, which shall remain in full force and effect, except as modified hereby.
6. No Representations by Agents or Lenders. Each Loan Party hereby acknowledges that it has not relied on any representation, written or oral, express or implied, by any Agent or any Lender, other than those expressly contained herein, in entering into this Amendment.
7. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment by facsimile or electronic mail shall be equally effective as delivery of an original executed counterpart of this Amendment.
(b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
(c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.
(d) Each Loan Party hereby acknowledges and agrees that this Amendment constitutes a "Loan Document" under the Financing Agreement.
(e) Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date set forth on the first page hereof.
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BORROWER:
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ITT EDUCATIONAL SERVICES, INC.
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By:
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/s/ Daniel M. Fitzpatrick
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Name: Dan Fitzpatrick
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Title: EVP CFO
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GUARANTORS:
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ESI SERVICE CORP.
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By:
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/s/ Daniel M. Fitzpatrick
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Name: Dan Fitzpatrick
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Title: VP Treasurer
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DANIEL WEBSTER COLLEGE, INC.
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By:
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Name: Angela K. Knowlton
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Title: VP & Treasurer
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COLLATERAL AGENT:
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CERBERUS BUSINESS FINANCE, LLC
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By:
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Name: Dan Wolf
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Title: President
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ADMINISTRATIVE AGENT:
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CERBERUS BUSINESS FINANCE, LLC
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By:
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Name: Dan Wolf
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Title: President
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LENDERS:
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CERBERUS LEVERED LOAN OPPORTUNITIES FUND II, L.P.
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By: Cerberus Levered Opportunities II GP, LLC
Its: General Partner
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Name: Daniel E. Wolf
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Title: Senior Managing Director
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CERBERUS NJ CREDIT OPPORTUNITIES FUND, L.P.
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By: Cerberus NJ Credit Opportunities GP, LLC
Its: General Partner
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Name: Daniel E. Wolf
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Title: Senior Managing Director
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CERBERUS ASRS HOLDINGS LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS ICQ LEVERED LOAN OPPORTUNITIES FUND, L.P.
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By: Cerberus ICQ Levered Opportunities GP, LLC
Its: General Partner
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Name: Daniel E. Wolf
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Title: Senior Managing Director
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LENDERS:
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CERBERUS KRS LEVERED LOAN
OPPORTUNITIES FUND, L.P.
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By: Cerberus KRS Levered Opportunities GP, LLC
Its: General Partner
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Name: Daniel E. Wolf
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Title: Senior Managing Director
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FIFTH AMENDMENT TO
RISK SHARING AGREEMENT
This FIFTH AMENDMENT TO RISK SHARING AGREEMENT (this “Amendment”) is made and entered into effective as of March 17, 2015, by and between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).
RECITALS
The following recitals are a material part of this Amendment:
A. ITT ESI and the CUSO (together, the “Parties”) are parties to that certain Risk Sharing Agreement entered into as of February 20, 2009, and subsequently amended on January 13, 2011, March 30, 2011, May 18, 2012, and November 6, 2014 (the latter, the “Fourth Amendment” and, collectively with the foregoing, the “Agreement”).
B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Agreement and Schedule A thereto.
C. The Parties have agreed to amend certain provisions of the Agreement in certain respects, subject to and conditioned upon the payment to the CUSO by ITT ESI of the Discharge Amount (as defined in Section 4 of this Amendment).
D. In connection with the foregoing, the Parties desire to amend the Agreement as set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby jointly acknowledged, the parties hereto agree as follows:
1. Subject to and conditioned upon payment of the Discharge Amount to the CUSO by ITT ESI as provided in Section 4 of this Amendment, Section 7.2(b)(1)(a) of the Agreement is hereby amended to read in its entirety as follows:
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a.
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Debt Service Ratio. A debt service ratio that is equal to or greater than 1.2 to 1, defined as earnings before interest, income taxes, depreciation and amortization divided by the current portion of long-term debt plus interest expense; provided, however, that for each of the ITT ESI fiscal quarters ending June 30, 2013 through March 31, 2015 (the “Debt Service Ratio Suspension Period”), compliance with this debt service ratio covenant is not required, and the failure to comply with this debt service ratio covenant during the Debt Service Ratio Suspension Period shall not require an increase in Collateralization Percentage pursuant to Section 6.3 of the Agreement;
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2. Subject to and conditioned upon payment of the Discharge Amount to the CUSO by ITT ESI as provided in Section 4 of this Amendment, Section 7.2(b)(1)(c) of the Agreement is hereby amended to read in its entirety as follows:
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c.
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Current Ratio. A current ratio, defined as the “Total Current Assets” as reported on ITT ESI’s consolidated balance sheet contained in its Forms 10-Q and 10-K filed with the SEC and any cash or securities pledged as Collateral under this Agreement, divided by the “Total Current Liabilities” as reported on ITT ESI’s consolidated balance sheet contained in its Forms 10-Q and 10-K filed with the SEC, of ITT ESI, equal to or greater than: (i) 0.75 to 1 as of June 30, 2012 and September 30, 2012; and (ii) 1 to 1 as of December 31, 2012 and every measurement period thereafter; provided, however, that as of the end of each of the ITT ESI fiscal quarters ending June 30, 2013 through December 31, 2015 (the “Current Ratio Suspension Period”), compliance with this current ratio covenant is not required, and the failure to comply with this current ratio covenant during the Current Ratio Suspension Period shall not require an increase in Collateralization Percentage pursuant to Section 6.3 of the Agreement. This calculation excludes all unsecured and uncollateralized related-party receivables and payables.
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3. Section 7.2(b) of the Agreement is hereby amended by adding the following at the end of Section 7.2(b) as a new subsection 7.2(b)(4):
(4) Effects of CUSO Consolidation. Notwithstanding anything contained in or that may be implied from this Agreement to the contrary, for any fiscal quarter end in which the CUSO or any asset owned or managed by the CUSO is consolidated in ITT ESI’s financial statements (“CUSO Consolidation”), the financial covenant and persistence percentage provisions of Sections 7.2(b)(1) and 7.2(b)(2), and the corresponding compliance certificate requirement of Section 7.2(b)(3), shall be based on the relevant quarterly and annual reports filed by ITT ESI with the SEC, but excluding the effects of any CUSO Consolidation.
4. On or before March 19, 2015, ITT ESI shall pay to the CUSO by wire transfer in immediately available funds the sum of $2,709,017.76 (the “Discharge Amount”), which payment in full shall discharge, pursuant to Section 3.6 of the Agreement, all of ITT ESI’s obligations under Article III of the Agreement with respect to those Loans set forth on Exhibit A to this Amendment to the extent and as provided in Section 3.6 of the Agreement. If ITT ESI fails to pay to the CUSO the Discharge Amount on or before March 19, 2015 in full as provided in this Section, no discharge of obligations with respect to the Loans set forth on Exhibit A shall occur, no amendments to the Agreement set forth in this Amendment shall become effective, and this Amendment shall terminate and be of no force or effect whatsoever.
5. For the avoidance of confusion, the Parties acknowledge and agree that, following payment of the Discharge Amount in accordance with Section 4 of this Amendment, the Parties’ respective rights and obligations under the Agreement with respect to those Loans set forth on Exhibit A to this Amendment shall continue in full force and effect to the same extent and in the same manner as other Loans discharged pursuant to Section 3.6 of the Agreement.
6. Notwithstanding anything contained in or that may be implied from the Program Documents or this Amendment to the contrary, the Parties agree that any ITT ESI financial statements for periods ending prior to the date of this Amendment that are required to be delivered to the CUSO pursuant to the Program Documents but have not been delivered as of the date hereof (collectively, “Outstanding ITT ESI Financial Statements”) shall be delivered to the CUSO on or before May 31, 2015. Further, the deadline for delivery to ITT ESI of any CUSO financial statements, audited or nonaudited, that would otherwise be required to be delivered to ITT ESI pursuant to the Program Documents on or before May 31, 2015 shall be extended to the fifteenth (15th) day following delivery to the CUSO of all Outstanding ITT ESI Financial Statements.
7. Except as expressly amended by this Amendment, the remainder of the Agreement is unchanged and remains in full force and effect.
8. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.
[Signatures appear on the following page]
IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.
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ITT EDUCATIONAL SERVICES, INC.
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By:
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/s/ Daniel M. Fitzpatrick
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Name:
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Daniel M. Fitzpatrick
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Title:
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EVP CFO
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STUDENT CU CONNECT CUSO, LLC
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By:
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Name:
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Joe Karlin
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Title:
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3/17/15
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[Signature Page to Fifth Amendment to Risk Sharing Agreement.]
EXHIBIT A
List of Loans for which ITT ESI obligations are to be discharged, to the extent and as provided in Section 3.6 of the Agreement, by payment of the Discharge Amount as provided in Section 4 of this Amendment.
See attached.
Exhibit 99.1
ITT EDUCATIONAL SERVICES, INC. PROVIDES
UPDATE ON LATE FILING STATUS
CARMEL, IN, March 18, 2015—ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, announced that it did not file its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “2014 Form 10-K”) on or before the due date of March 16, 2015. The company has received a notice from the New York Stock Exchange (“NYSE”) that the company is subject to the NYSE’s procedures under its timely filing criteria as a result of the company’s failure to file the 2014 Form 10-K by the due date. The issuance of such a notice is considered routine practice in situations where there are late filings with the Securities and Exchange Commission (“SEC”). Under NYSE rules, the company has six months from March 16, 2015 to file the 2014 Form 10-K. Until the company files the 2014 Form 10-K and all other periodic reports with subsequent due dates, its common stock will remain listed on the NYSE under the symbol “ESI,” with a “LF” indicator to signify late filing status. The company can regain compliance with the NYSE listing standards during the six-month period once it files the 2014 Form 10-K with the SEC, but only if it has also filed all other periodic reports with subsequent due dates.
As previously reported in Form 8-K filings, the company engaged a new independent registered public accounting firm during the fourth quarter of 2014. Also as previously reported, the company will be required to consolidate into its consolidated financial statements the variable interest entity (the “2009 Entity”) in which the company holds a variable interest in connection with a private education loan program entered into in 2009. After significant analyses and review associated with the accounting related to that consolidation, the company now believes that the effective date of the consolidation of the 2009 Entity is September 30, 2014. Although management of the company has been working diligently to complete the company’s consolidated financial statements as of and for the three and nine months ended September 30, 2014 and as of and for the year ended December 31, 2014, the extensive analyses and reviews related to the consolidation of the 2009 Entity have caused the delays associated with completing the company’s financial statements and related disclosures for those periods.
Based on a preliminary, unaudited assessment of the fair values of the 2009 Entity’s assets and liabilities as of September 30, 2014 and the elimination of intercompany transactions, the company believes that it will not recognize a loss on the consolidation of the 2009 Entity. The company is still evaluating and analyzing the impact of the consolidation of the 2009 Entity on its consolidated financial statements, but based on that same preliminary, unaudited assessment, the company believes that it may recognize a pre-tax gain related to the consolidation of the 2009 Entity that could be material to its consolidated financial statements for the year ended December 31, 2014. This estimate of a potential pre-tax gain is preliminary and is the result of the difference between the estimated fair values of the assets and liabilities of the 2009 Entity as of September 30, 2014, which are subject to change. Further, the company does not believe that the consolidation of the 2009 Entity will have a material negative impact on its ability to comply with:
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its covenants under its financing agreement;
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the U.S. Department of Education’s financial responsibility measurements, primarily the company’s institutions’ composite score;
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the financial requirements of the state education and professional licensing authorities to which the company is subject; or
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the financial metrics to which the company is subject under its guarantee arrangements related to the 2009 loan program and the PEAKS Private Student Loan Program.
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However, the company is still evaluating the full impact of the consolidation of the 2009 Entity on these matters, and therefore cannot provide any assurance that the consolidation of 2009 Entity will not have a material negative impact on these matters, which could result in a material adverse effect on the company’s results of operations, financial condition and/or cash flows. Further, the company did anticipate that it may be in noncompliance with certain covenants under its financing agreement and certain metrics under the risk sharing agreement it entered into with the 2009 Entity as a result of other factors, including related to the late filing of its 2014 Form 10-K and potential late filing of its Form 10-Q for the first quarter of 2015 (the “First Quarter 2015 Form 10-Q”), and therefore it recently entered into amendments to those agreements. For additional information regarding those amendments and regarding the consolidation of the 2009 Entity, see the Form 8-K filed by the company with the SEC on March 18, 2015.
The company intends to file the 2014 Form 10-K, as well as its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 (the “Third Quarter 2014 Form 10-Q”), as soon as practicable. Based on the company’s current estimates, it believes that it may file the 2014 Form 10-K and the Third Quarter 2014 Form 10-Q on or before May 31, 2015. Due to the uncertainty with respect to the timing of the completion of the necessary reviews and analyses, however, there can be no assurance that the company will be able to file the 2014 Form 10-K, the Third Quarter 2014 Form 10-Q or the First Quarter 2015 Form 10-Q by that date or within the NYSE’s six-month cure period. In the event the company fails to file its 2014 Form 10-K by the expiration of the six-month cure period, or if the company is delinquent in the filing of any of its subsequent periodic reports at the expiration of the six-month cure period, the NYSE may commence proceedings to delist the company’s common stock, unless the NYSE grants, in its sole discretion, a further extension of up to six months. There can be no assurance that the NYSE would not commence delisting proceedings at any time with respect to the company or that it would grant a further extension to the company.
Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based on the current expectations and beliefs of the company's management concerning future developments and their potential effect on the company. The company cannot assure you that future developments affecting the company will be those anticipated by its management. These forward-looking statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: the impact of the company’s late filings with the SEC, including the 2014 Form 10-K; the impact of the adverse actions by the U.S. Department of Education (the “ED”) related to the company’s failure to submit its 2013 audited financial statements and 2013 compliance audits with the ED by the due date; the impact of the consolidation of variable interest entities on the company and the regulations, requirements and obligations that it is subject to; the inability to obtain any required amendments or waivers of noncompliance with covenants under the company’s financing agreement; actions by the New York Stock Exchange to delist the company’s common stock; the company’s inability to remediate material weaknesses, or the discovery of additional material weaknesses, in the company’s internal control over financial reporting; issues related to the restatement of the company’s financial statements for the first three quarters of 2013; the company’s exposure under its guarantees related to private student loan programs; the outcome of litigation, investigations and claims against the company; the effects of the cross-default provisions in the company’s financing agreement; changes in federal and state governmental laws and regulations with respect to education and accreditation standards, or the interpretation or enforcement of those laws and regulations, including, but not limited to, the level of government funding for, and the company's eligibility to participate in, student financial aid programs utilized by the company's students; business conditions in the postsecondary education industry and in the general economy; the company's failure to comply with the extensive education laws and regulations and accreditation standards that it is subject to; effects of any change in ownership of the company resulting in a change in control of the company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of its campuses; the company's ability to implement its growth strategies; the company’s ability to retain or attract qualified employees to execute its business and growth strategies; the company's failure to maintain or renew required federal or state authorizations or accreditations of its campuses or programs of study; receptivity of students and employers to the company's existing program offerings and new curricula; the company’s ability to repay moneys it has borrowed; the company's ability to collect internally funded financing from its students; and other risks and uncertainties detailed from time to time in the company's filings with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.
FOR FURTHER INFORMATION:
COMPANY: WEB SITE:
Nicole Elam, Vice President www.ittesi.com
(317) 706-9200
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